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There is a widespread incorrect public perception In India that it has a very large public sector. If anything, the public sector is too small. The US employs persons or approximately 15% of its workforce in all levels of government. The UK employs about 18.5%, 5.6 million of a workforce of 29.7 million. India’s statistics of 17.6 million employed in the public sector of a total workforce of 474 million i.e. 3.7% seems miniscule. Even among those employed, the majority are semi-skilled or unskilled whereas the majority in Western countries are skilled, as is necessitated by the needs of providing health and social welfare benefits. The Indian government employs 162.3 government servants per 100000 persons as compared to 768.1 in the U.S. In an article in 2012, The Hindu, in fact, called the government anaemic.

Why then the public perception?

The problem is that whatever government that exists is so inefficient and corrupt that the little there is seems to be too much. There is a severe shortage of skilled personnel to work in sectors such as health, education, public works etc. but there is no ongoing effort to create such a workforce. Instead, hiring has been, more or less, frozen since 2011 as the government is said to be ‘too big’.

This, when India is actually an example of classical laissez faire. People are left to their means; those with money and power prosper and enjoy resources and facilities while those without attempt mere survival. There is no concept of social security. Even the ability of the state to maintain law and order is not applicable everywhere. Large swathes of the country have only the token presence of a state. On the whole, people are left to do as they deem fit.

‘You can’t make laissez-faire mandatory!’

In a Western country, the government is everywhere. It is omnipresent through the police, in the security cameras, through the laws that govern public property or through working government helplines. India has no emergency response service to match the US 911 or the UK 999. The government exists, in absentia and lets the people rule the land.

This is amply demonstrated by the way that public land is treated by Indians and the way they throw garbage or spit on the street. They know that they can do as they please and nothing can stop them. The Indian spirit is embodied in the classic Indian phrase ‘chalta hai’. Representative of compromise and adaptability in all circumstances, the phrase masks a public apathy towards excellence and demanding of rights considered basic by citizens of developed economies.

Laissez Faire but not Laissez Faire Capitalism

Considering that fiscal spending is considered to be the primary tool for stimulating economic growth in modern Keynesian economic theory, the sums of money actually spent on Central government schemes are not that large with a few exceptions. However, whatever is undertaken is more with the view to offer classic opportunities for graft to the unscrupulous in the government and thus largely a burden on the public exchequer.

On the other hand, it is very hard to do business in India in the organized sector with an interfering government that could arbitrarily impose tariffs, regulations or even tax retrospectively. Indian labour laws and laws governing the establishment of business are hopelessly out of date and favour an economic mindset that went out of fashion half a century ago.

Western Social Capitalism

Modern Western governments, in fact, much more socialist than capitalist in the classical sense. Governments are not just expected to provide civic facilities; they are expected to provide housing, unemployment allowance, pension, and even bail out funds to the occasional big bank. Whatever the problems caused by these massive welfare obligations, it reflects the acceptance of the fact that self-interest may not match with public interest. This mix of capitalism and socialism is the hallmark of the developed economy and necessitates the existence of government bodies to regulate and govern.

The importance of public sector in the Western world

Thus, India represents neither laissez faire capitalism nor Keynesian economics, just unadulterated laissez faire. With India gradually gaining more prominence, who knows whether a few decades from now, like this classic French phrase, even chalta hai may be studied in economics textbooks;hopefully, only as a relic.

On 26 August, I watched Gujarat tremble, not owing to an earthquake but something more insidious, fear. In rallies with turnouts between half a million to a million plus, the Patel/Patidar community of Gujarat turned out to demand reservation for their caste over the past few days. Violence is virtually inevitable when such turnouts occur and when it occurred on the 25th, it led to a state wide siege situation that is yet to normalize.

Easy to burn

The entire act is so disdainful that one can only look to Africa for a fair comparison. The vandals had no compunctions destroying state property belonging to everyone. I wonder how many of these agitators pay their requisite share of income tax. The ‘violence’ that scared people across the state is witnessed in the ordinary UP or Bihar town so regularly as not to merit mention. In spite of this, the population of Gujarat sat paranoid with mobile sms and internet services blocked, schools and colleges closed and with all shops shut including even restaurants. ATMs were closed. Dairies ran out of milk. The army was called in too for an action which, to put it mildly, is not something a soldier signs up for.

It was an act of open surrender (I am amazed at how easily people are scared) and the ease with which a situation like this can be created in one of india’s wealthiest states astounds me, makes my blood boil and fills me with despair simultaneously. Throughout the Third World, particularly the Middle East and Africa, similar sectarian demands by tribes and communities have created deep rifts which have led to non functioning democratic governments whenever given the chance. Parochial communities who act for their own self interest only and give a finger to the government are a typical representation of strife torn Africa.

Such demands by communities and such prosperous ones cannot be met by any government without causing injustice. Unfortunately, the past gives us examples on how Indian governments have capitulated in the face of violence and muscle power wielded by large narrow minded communities. Our populace is largely more peaceful historically than the Middle East and Africa. This is perhaps the reason why we have not degenerated to the level of civil war like them. However, the vision of a nation living with various communities in harmony is a myth. The communities only find it more profitable economically to trade than fight. It is like the strategy game ‘Age of Empires’ in which you could ally with the neighbouring kingdom/tribe/community or conquer it based on pure pragmatism.

Tough luck, but you were more profitable to kill

In the August that marks the anniversary of India’s freedom, it is clear that the freedom is only apparent if all it takes to shut a state of 63 million is a bunch of people burning a few government buses, and led by a 21 year old leader asking the government to bow down to absurd, and risible, demands. The entire fiasco makes a mockery of our tall claims of upholding democratic ideals of justice, equality and freedom.

Washed away

Idle minds and idle hands: A macroeconomic issue?

The Patel/Patidar community, a relatively economically prosperous community constituting over 12-15% population in Gujarat and wielding better than proportionate political power is now asking for itself to be classified with ‘other backward castes’. The demand is so ludicrous that the first time I heard it I thought it was part of a slapstick comedy routine. This group has so much money that they could probably buy their own small country if they wished to. The Supreme court has capped reservation at 50% which means that the Patels would have to fight for their reservation among the already crowded OBCs. Are they asking for a breach of the 50% ceiling and thus inviting demands by castes across the country for respective allocations which can only stop at 100% reservation? Frankly, the demand is a reminder that the macroeconomic situation in the country needs urgent reform. A historically job eschewing, prosperous, business community now wants to serve in government positions and study in top government educational institutions guaranteeing plush corporate jobs largely because they think that business is not profitable anymore.

India cannot vie with top developed world countries when its people cling to insular issues like caste. Reservation is an absolute bane which makes sense perhaps for the economically backward in the context of social welfare but is incredibly anachronistic when viewed from the lens of caste.

The country needs more colleges, more schools and more emphasis on creating a force of excellent well-paid teachers to teach its young students. It cannot waste its time on a fallacious system of reservation that suppresses merit and encourages the meritorious to migrate to other countries that give them a better deal. There are only so many government jobs and more can only be created if the country grows. The macroeconomic situation of the country cannot improve with impromptu bandhs that destroy livelihood. Bengal is an excellent example of a state that destroyed itself in this fashion in spite of once being the capital of British India. Let India not become Bengal.

A couple of days ago, an article published in DNA made quite an interesting read explaining how a man paid Rs. 11904 for booking two premium tatkal railway tickets when he had been quoted a price of Rs. 4334 at the time of booking on the IRCTC portal.

Seasoned users of IRCTC know that availability positions on the website are untrustworthy during Tatkal hours and thus a confirmed ticket displayed the previous second might turn into a waitlist 12 by the time electronic payment is actually made. By extension, a dynamic pricing system too is expected to suffer from the same problem. This is also the exact defence put forward by IRCTC to DNA. In other words, ‘Sorry consumers if the system might seem non-transparent but there are simply too many of you for us to handle simultaneously at that speed’.

Contradicting basic ethics

This sort of explanation might pass muster for normal Tatkal tickets at fixed fares but rings hollow in the context of premium Tatkal. The problem is that it contradicts the basic ethics behind a buy sale transaction. Let me explain. Tickets are a scarce resource and IRCTC believes that market forces should decide the price of some tickets so that it could cash in on the real higher price of tickets, similar to what happens in an auction. So it goes for dynamic pricing in which successive tickets are priced higher till they reach an upper ceiling. Very good in theory but unfortunately, in real time, the pressure on the IRCTC servers is such that people have no idea about the price they will be actually paying for the ticket and the allotment of fare is more or less like in a lottery.

The way I see it, IRCTC has priced a certain number of tickets at various prices and systematically matches users to these tickets at first come first serve basis. This is intrinsically different from an auctioning process in which bidding is done by the users at prices decided by them.

Today, a user sitting down to purchase a premium Tatkal ticket knows nothing beyond that he will pay a price between the opening price and the capped maximum limit, currently at three times the base fare. As every moment matters when booking a Tatkal ticket, many users banking with SBI avail the IRCTC quick pay servicethat skips several important confirmation pages specifying the exact amount being paid. Thus many users will know the actual amount only through informational SMS alerts. Even users not paying through quick pay services are expected to react in fractions of a second as to whether the fare is appropriate as a delayed reaction might result in a lost ticket. On the other hand, tickets once booked cannot be cancelled.

Now, it is technically correct to say that a user accepts the terms and conditions prior to using the website and users are free to make their own decisions regarding using the website but is it ethical for a monopoly website to behave in this manner?

It is just plain wrong

With long waiting lists in trains and sky high air fares, pun intended (if flights indeed are available between the source and the destination), Tatkal is the only feasible option available for many commuters travelling at short notice. Premium Tatkal quota gets its allotment by eating from the regular Tatkal quota that itself gets its quota by eating from the general pool (remember, no capacity has been added) which basically means that there are lesser cheaper tickets available than before. Charging an unknown fare to a helpless and desperate consumer for normal services made artificially scarcer with absolutely no premium features is just, well, wrong.

Raking in the moolah

Sadly, the brilliant B-school mind, that had devised this technique of making the railways more money without raising the general passenger fare, either did not spot or worse, deliberately ignored the incredible unfairness of the system. On a related note, I suspect a similar kind of mind behind the increase of advance booking window to an unreasonable 120 days (from planning perspective in the fast moving 21st Century) and higher cancellation and service charges to cash in on the higher ticket churn this will inevitably result in.

Premium Tatkal isn’t a write-off though: a suggestion

Premium Tatkal is not necessarily a bad idea. Many people are currently paying agents a substantial premium for Tatkal or even normal tickets on busy routes. Premium Tatkal is cashing in on this premium legally and passengers might also be happier with the mechanism as they do not have to resort to touts.

My suggestion would be to chuck dynamic pricing and charge every premium Tatkal ticket the same fare. The fare could be the average price of all premium Tatkal tickets currently being sold for a train. Railways would earn the same revenue but users would know in advance what they are paying.

Railways is supposed to be for the people

The railways may have a corporate objective to make profits but it must remember that it is providing a basic public service on public land using taxpayer money. As no private competitor is allowed by law, it has an ethical obligation to price its services fairly.

According to the WHO Global Status report on Road Safety 2013, ‘wearing a seat-belt reduces the risk of a fatal injury by 40–50% for drivers and front seat occupants, and between 25–75% for rear seat occupants’ and ‘wearing a standard, good quality motorcycle helmet can reduce the risk of death by 40% and the risk of serious injury by over 70%’. This lends credence to the active public campaign by police, media and social groups to make people wear helmets and seatbelts.

Nonetheless, the overwhelming emphasis on these protective measures is inherently faulty as the focus is not on preventing road accidents but only on being better protected against them. This is equivalent to allowing everyone to carry a gun freely and then making it compulsory by law to wear a Kevlar vest.

That’s what I mean by protection, baby!

In Indian cities, it has been compulsory to wear a helmet and wear seatbelts for quite some time and if people are still not doing so, then they are exercising a rational choice (for eg. I could die by not wearing the helmet but the helmet gets me sweaty, hair gets sticky and spoilt).

However, there could be no moral or rational basis for exposing a second person to undue harm by your own reckless driving. Yet, this is hardly policed. Over speeding, dangerous switching in and out of lanes, driving on the wrong side of the road, parking on flyovers/ bridges, unnecessary driving on high beam in cities, blaring of disturbingly loud horns that wreck every driver’s road composure, wanton crossing of roads by pedestrians in between barriers: these go on rampantly. Are these harder to police? Yes. But impossible? No. What makes it even more important to pull up these violations is that enforcement is sure to have a direct impact by lowering these violations, and consequently, accidents. Sadly, just because it is easier to catch people riding without helmets or without seatbelts and it is so lucrative, almost the entire challan targets of the traffic police are met by these violations of personal protection.

Ok, this one is preventive and protective

It is not the responsibility of the government to force people to protect their own life but it is very much its responsibility to ensure the road safety of a person who is careful and following the rules.

( Will be writing a more detailed post on actual road accidents and their prevention shortly)

The bottleneck is often more important than the pipeline. Graphic courtesy Mitch Ditkoff

If the Europe today is being reckoned as a slow motion train wreck, how should we explain the situation in India? India’s can be reckoned as a situation where a person living happily in a house having deadly radioactive materials and behaving as if nothing is wrong. The radiation unhurriedly but insidiously and interminably performs its task of destruction even as the person lives in blissful ignorance. Let me explain. The demographic dividend of a young population is a short-lived phenomenon of 15-20 years after which the cycle will start reversing. An inherently flawed and underequipped education system is destroying the potential of this young population. A completely corrupt administration has robbed India of good brains and made them lose the incentive to do good work in India. It has also shaken the traditional belief that doing honest work is good and created angst in the country’s youth.

However, by far the greatest thing holding India back is a complete lack of innovation. A ridiculous, rote based, obsolete education system is set to work on a person till around 21 years of age. In these years it is learnt from active experience that thinking differently only leads to lower marks and it is safest to follow the herd and mimic things. No wonder Indians are leaders in imitation. In colleges, technologies that became obsolete 20 years ago are taught to final year students.

How do nations become great? By the same thing that makes a brand or a company great: a differentiating factor. In ancient history, India’s: exotic agricultural products, natural resources and knowledge; Post Renaissance Europe’s: scientific discoveries and innovation in warfare including both technology and tactics; Today’s China’s: cheap and effective labour; Japan’s: innovation; USA’s: all round strategic approach, geographical protection from attack, abundant and diverse natural resources and most importantly innovation.

Natural resources do play an important role in development. The Middle East, Russia, Latin America and most of Africa abound in natural resources. However, their report card in development has been poor. The most successful of these, the middle eastern countries may be rich and developed but have virtually no political and military power and can be crushed underfoot anytime as also clear from recent instances.

The Japanese are by far the best example of how a crippling lack of natural resources can be overcome through a mixture of innovation and sheer hard work. Japanese innovation is visible in their techniques as well as their management style.

Hard work is cited by most people as the most critical determinant of success. I disagree. Hard work could decide success but it is only as good as another differentiating factor. It is also a very weak differentiating factor because people work hard across countries. Hard work works but in conjunction with something else. If hard work were the sole criterion, the Africans should have been the most developed race. After all, they are the fittest and the toughest as is clear from their athletic performance and they have worked the hardest as slave labour.

Today, the Americans and Europeans feed off the innovation they have been doing for centuries. They own the technology and sell it to the developing world at extortionate prices. The free market forces which are supposed to take the price of technology down do not exist as there are huge entry barriers and the companies know that price wars would not suit anybody. Take defence for example. Research in this field requires gargantuan amounts of time and money and there are a plethora of failed products. R&D may take billions of dollars with no guarantee of success. However, once a product is developed companies are able to market it at unbelievable prices. Their competitors may compete on price but they rarely do so beyond an extent because of the high degree of customization in specification in this segment. Indians pay premium money for wearing foreign brands. Have they ever really wondered what goes behind the appeal of the Armani and what it is really worth?

Customization and brand specialization is a concept that beats standardization by hundreds of miles in moneymaking. Standardized products face competition on price, distribution and a plethora of local factors. Their margins are decided and are extremely sensitive. On the other hand, customized products or branded items command their own price. Compare a restaurant and a grocery store. The restaurant may deliver the same food as other restaurants but could claim uniqueness and marketing, décor, ambience or food quality and thus establish a brand. The regular grocery store could almost never claim any of these for charging a higher than market price. No customer bargains in a restaurant. Every customer bargains against vegetables.

The more intangible and non-standardized the value addition the greater the room for profit.

The point is that innovative products make money. Brands make money. We own no brands (Bose audio systems is an exception) and the way we are going we will own none in years to come.

I will be blunt. I do not believe India could ever become even a quarter developed by buying every piece of technology from the West. We need to think big and move higher in the chain to where there is the highest value addition. It is pathetic that top Indian software engineers develop codes for Microsoft while our topmost ‘software’ companies service customer complaints. Out top brains too cannot be faulted beyond an extent. There is very limited scope for them in Indian companies and their natural risk aversion prevents them from starting something on their own.

Our top institutions hardly come out with any groundbreaking research in spite of years of research. Our countrymen have never had an attitude towards research. They are experts at the monkey trick of Palika Bazaar but as far as developing their own stuff is concerned they would never take the risk. Compare the amounts sanctioned towards research in India as a percentage of GDP against Western nations. Most importantly compare the indolence of the bureaucracy towards research with the eagerness displayed by the West. Our bureaucracy takes research as an unnecessary expense that is being borne only because doing away with it entirely could evoke scorn. Therefore they spend the least amount of effort on it.

Most Westerners who have heard of India believe it to be the land of spiritualism, yoga and mysticism. Many of them also know that most of their customer service calls are serviced by ‘those Indian mimics’. This may seem racist but sadly it is true. Mimicking is something of a forte’ for Indians. Just like Indians specialize in copying Lee and Levis jeans, they specialize in parroting American phrases in call centres without even understanding the meaning in many cases. It is something which comes naturally to a generation that has copy pasted 98-100% of their project work. As a student, I have seen classmates taking pride at how ‘brilliantly’ they managed to finish their projects in 20 minutes. It is no wonder that our countrymen are unable to produce anything of their own.

This mimicking ability is itself easily copied. The Chinese, Filipinos or Sri Lankans, to name a few, are increasingly getting more competitive in the outsourcing industry. Outsourcing thrives on English knowing cheap labour and lots of countries have cheap labour. It is a competitive advantage which is transient as far as India is concerned. Even if it were not transient, it is shameful to be proud of an industry that develops no employee skills except for limited English skills and a thicker skin. It is poor way to employ the commerce, engineering, pharmacy and even management graduates that are being industrially produced in our education factories. These graduates are practically unskilled labour unsuitable for any real industry. Our outsourcing industry, however, thrives on them.

Whether we like it or not, till the education system shines and ushers in a new class of students who can innovate, the only memory ‘India Shining’ is going to invoke is the failed NDA poll campaign of 2004.

It has been three years from the time when the nuclear deal was making headlines every day. A deal important enough to destabilize a government and lead to unprecedented diplomatic activity is now dead as a topic. This is only natural but remember that the deal had permanent repercussions and quite a few of the fallouts could be newsworthy in the future, energy security for instance. It is true that every now and then a pale ghost of the era does manage its entry such as the recent clearance by Australia to supply nuclear fuel to India.

The need and the projections

As of November 2011, India had an installed power capacity of 185GW. However as 35% of the power generated is lost, actual power delivered is much lesser, around 110GW. The peak demand for electricity is expected to grow to 298GW by 2021-22 according to the 17th electric power survey of India report. This calls for a trebling of power capacity in around ten years. At present nuclear power meets 3% of India’s power needs with around 3.7GW capacity. NPCIL has called for a target of getting 60GW of nuclear power online by 2032. There has also been a revision of the earlier target of 20GW by 2020. Now NPCIL projects 22GW nuclear power by 2015. In fact Atomic Energy Commission has speculated on figures as large as 600-700GW by 2050 providing half of all electricity. First of all, I am amazed that these guys have the ability to project 40-50 years in the future. No doubt there are some Nostradamuses in the AEC. They are also intelligent enough to give enough time to the government to think of a few gigawatt excuses when these targets, inevitably, will not be delivered. However, even in the best case scenario, nuclear power would still be a small percentage of India’s energy pool in the next ten years.

A shortage of fuel?

Our reactors have sharply decreased their capacity utilization over the past few years due to fuel constraints. This solution to this problem was one of the hallmarks of the deal.
Total uranium usage in 2006 was 478 tons. India’s domestic uranium reserves at around 80000-112000 tons could last us for several decades. I am not even talking about our vast thorium deposits athtw e are yet to utilize. Yet we have fuel constraints: why? I quote from Ashley J Tellis’ book ‘Atoms for War? U.S.-Indian Civilian Nuclear Cooperation and India’s Nuclear Arsenal’, ”The present insufficiency of uranium fuel arises not so much from a lack of natural uranium reserves as it does from bottlenecks in mining and milling capacity.”

If breeder technology is used and it shall be used at some stage, perhaps very soon, spent fuel could be reprocessed for plutonium increasing the longevity of our reserves still further.Unfortunately no one has thought of the ramifications of depending on power derived completely from foreign sources. A sanction could cripple us anytime. This is the same story as coal. We do not mine our own reserves but prefer to buy at high rates from abroad.

The nuclear deal aimed at giving us access to the Nuclear Suppliers Group (NSG) in terms of fuel and technology. This objective has been realized partially with cooperation from quite a few countries(France, South Korea, Australia, Namibia, Kazakhstan etc.) So should Dr. Manmohan pat himself on the back?

Too little Too Late

He can but only a light pat. The odds are that nuclear power is hardly going to make a dent in India’s power requirements in the near future. The predictions of the distant future are so fantastic that they remind one of the more optimistic stories of HG Wells (I was also reminded of stock market analysts who predicted FY12 1350EPS, keep it up boys!). The government organizations are revising their targets steeply upwards as if it is going to create actual capacity. Their predictions and targets differ by tens of GW. Government estimates are usually hopelessly overoptimistic (remember the budget expectation of 9%FY12 growth?) it is likely that the 2015 or 2020 targets will actually be achieved several years later. Even going by their aggressive targets, nuclear power is not going to solve India’s energy problem; it is much more prudent to worry about our coal supply situation.

A Grudging Acceptance

The US has clearly not cooperated to the extent expected. Ever since Bush left, they have begun dragging their feet on various issues. The primary deal has a clause that calls off the deal as soon as India performs a nuclear test, they have imposed CTBT on us from the back door. These guys are smart; once they can make India significantly dependent on nuclear fuel they know that India would be willing to do anything to prevent a disruption of supplies.It does not matter that the cancelling of the 123 agreement will not, prima facie, lead to cancellation of supply from other countries; US pressure will automatically ensure that. Further, restrictions and ‘safeguards’ on our nuclear facilities will remain in place permanently, deal or no deal.

Russia has always cooperated with India on nuclear power and irrespective of the deal we would have had cooperation from Russia. What would not have been possible without the deal was acceptance by the NSG of India’s status as a nuclear power.

This argument is weak and not just because of the NSG nations could not have permanently ignored the great loss of potential revenue because of their blacklisting of India. It is weak because even the hypocrites of the NSG would have been able to see that India could not be bracketed with North Korea, Iran and Pakistan. The US and Russia have enough nuclear weapons to destroy the earth many times over and have all sorts of weapon systems to deploy these weapons virtually anywhere. China has been responsible for the proliferation of nuclear weapons to Pakistan and North Korea. The other nuclear power states, if not anything else, have conducted scores of nuclear tests. Yet these countries always assume the upper hand and have us groveling at their feet whenever the word ‘nuclear’ is mentioned. Our behaviour is like that of the dark complexioned girls in the ‘Fair and Lovely’ ads. We feel permanently inferior have to be somehow endorsed by the fair.

Policy based on farsightedness?

There can be another stream of though here though. India could be smart enough to try to exploit the uranium reserves of other nations as its own are finite. Expecting such far sightedness from Delhi may be asking for too much but you never know. As it is, this is a positive from the deal. In several decades, we should be able to get the necessary approvals and fulfill the procedures necessary to exploit our own reserves. Till then, let us drink our Indian cocktail of imported coal, crude and uranium. Long live our trade deficit. Hic!

P.S: There is no denying that our nuclear power sector will benefit from the deal in the long run. It is probable that India could not have been able to negotiate a better deal. It is just that the deal was shown so much as an achievement that I thought a little perspective is required. I could not take all that nonsense about ‘India being a nuclear pariah’ any longer.